Question: Automotive assemblers and their inbound supply
Automotive assemblers and their inbound supply chains have developed many solutions to orchestrate the manufacturing and delivery of the thousands of parts that go to make up a vehicle. The many potential inbound logistics solutions are summarized in Figure 8.13.
Figure 8.13
Evolving inbound supply relationships
Changes are of increasing value to the vehicle assemblers, where the complexity of the logistics operation has been greatly downsized by reducing the number of tier 1 suppliers and broadening their responsibilities. Yet the ability of the assemblers to customise their finished products has increased. Quality consistency is expected at 50 ppm, whilst demanding price reduction targets are the norm.
Supplier delivers CIF (carriage, insurance and freight)
The supplier delivers the ordered parts to the assembler’s factory, and includes the distribution costs in the piece part price.
Assembler collects ex-works
The assembler subcontracts the process of parts collection from a number of suppliers visited on a daily frequency. Parts are taken to a consolidation centre, where they are decanted into trailers destined for different assembly plants. An example is the Ford operation run by Exel at Birmingham in the UK. Parts collections are made from the Midlands region of the UK, and dispatched to 22 Ford plants around Europe.
Automotive supplier community
This is a dedicated co-location of suppliers in the region of dedicated vehicle manufacturers. The big difference from all the other integration types is that deliveries are made to more than one vehicle assembly plant. An example for more than one OEM plant is the BMW Innovation Estate in Wackersdorf where several suppliers provide parts for four BMW sites.
On-site distribution centre
Instead of delivering parts directly into the assembler’s plant, the logistics partner may deliver into a distribution centre positioned close to the assembler’s plant. The advantages are much more controlled inbound parts movements into the plant. The assembler is able to call up parts that are needed for a relatively short time period, thus improving material flow into the plant and reducing vehicle congestion. Additional value-adding activities may also be carried out in the DC. Thus, for example, suppliers carry out some final assembly and sequencing tasks in the new Integrated Logistics Centre at BMW, Cowley.
Supply centres
These are co-located supplier clusters on site and could be part invested by the VM and service provider (3PL). Supplier proximity enables late module configuration with smooth material flow. BMW Leipzig uses an electrical conveyor system to connect external and internal suppliers to the assembly line.
Chain logistics
Here the objective is to increase the speed of the inbound supply chain. If not planned and managed, drivers’ hours regulations across Europe can lead to waste as the supply chain stops to allow for rests. The higher the speed of inbound supply, the lower the stock that needs to be held at the assembly plant. A useful further advantage is that the higher the speed, the less packaging and fewer containers are needed in the supply chain. An example of chain logistics is the ALUK operation that supports the Toyota plant at Burnaston in the UK. Parts movements from a supplier in southern Spain are planned in four-hour stages, where the full trailer is swapped for an empty one in a similar fashion to the Pony Express in the days of the Wild West!
Supplier park
A supplier park is a cluster of suppliers located outside but close to a final assembly plant; popular with JIS suppliers and associated with new assembly plants linked to supplier by conveyor belts, tunnels or bridges. (JIS = just@in@sequence: the capability to supply a module in accordance with the drumbeat requirements of an assembler.) Major tier 1 subassembly manufacturers are positioned on a supplier park close to the assembly hall. Major subassemblies are then sequenced into the assembly hall in response to a ‘drumbeat’ (based on the master schedule – see Chapter 6), which identifies the precise specification of the next body to be dropped onto the trim and final assembly track. Suppliers then have a finite amount of time to complete assembly and deliver to the point of use on the track. An example here is the Exel operation at the VW–Seat plant at Martorell near Barcelona, where material movements on the supplier park are specified and orchestrated by means of Exel’s IT systems.
Modules
The VW–Seat plant at Martorell demonstrates a further advance in logistics thinking. Instead of delivering a large number of subassemblies, why not get the tier 1 suppliers to coordinate all the parts needed to produce a complete module that then simply can be bolted onto the car? Product variety can be increased by customization of the modules. The advantages are illustrated in Figure 8.14.
Figure 8.14
Modularization: doing more with less
Modular designs offer less WIP and a considerably downsized process for the assembler, and greater variety for the customer. Downsizing of the assembly process means that it is shorter, and can be positioned closer to customer demand. Complexity can then be added later in the pipeline between customer order and delivery of the specified car into the customer’s hands – a concept called postponed variety. The term synchronous supply has been used to describe the delivery of modules not just at the correct quality and correct time, but on a real-time basis with the assembler and with the added challenge of zero safety stock. The condominium approach goes a step further in integration. In this case the suppliers reside and operate under the same roof as the vehicle manufacturers. Due to outsourcing and the lean management, VMs often do not need adjacent space at the final assembly track and can thus offer their factory space to suppliers. Suppliers then assemble their own modules inside the assembly area. An example for the condominium is the Ford Industrial Complex at Camacari in Brazil.
Modular consortia
This is the highest possible integration step for suppliers in the automotive industry. The whole assembly operation is divided into separate modules, with a supplier responsible for each. Therefore, the suppliers not only assemble the modules, but they also perform part of the final vehicle assembly.
The VW bus and truck plant in Brazil is an experiment in the further development of the modular concept. The truck assembly operation has been divided into seven modules, with a supplier responsible for each. All the direct workers are on the supplier’s payroll, and the supplier not only assembles the module, but also performs final assembly of the vehicle. The assembler’s task has been downsized to engineering, design, supervision and administration. The Mercedes plant at Hambach in France, which produces the micro compact Smart Car, divides the vehicle into five main modules. Seven suppliers are fully integrated into the final assembly plant, whilst 16 non-integrated suppliers deliver submodules and parts. The whole information system – which supports manufacturing, logistics and distribution – is outsourced to Accenture.
Implications for suppliers
The demands on tier 1 suppliers increase in proportion to the various logistics solutions described earlier. A clear trend towards supplier parks and modularisation can be seen in the logistics strategies of automotive assemblers. Increasingly, tier 1 suppliers are being expected to control subsequent tiers in the supply chain, whilst ensuring delivery and quality to the assembler. At the same time, challenging cost reduction targets are being set, whilst the whole process is facilitated by tier 1 outbound defect levels that are less than 50 ppm. Many suppliers question whether the draconian demands for ‘cost down’ targets are compatible with such defect levels.
Four distinct stages can be seen in the development of capabilities by tier 1 suppliers:
. Tier 1 basic: suppliers with in-house design capability and project management capability who can ensure timely delivery and reasonable quality reliability (50 ppm). An example would be a tyre manufacturer who holds four–five days’ stock and who delivers to set time windows: that is, limited logistics capability.
. Tier 1 synchro: suppliers who provide all of the basic capabilities, but with virtually no safety stock. Additional capabilities for the supplier are synchro logistics and IT expertise, which is closely integrated with the assembler, greater flexibility and more secure emergency procedures. They operate through ‘clone’ plants that are situated on supplier parks no more than 10 minutes’ travel time from the assembler’s production line.
. Tier 0.5: full service providers, who integrate component manufacturing through supply chain management to achieve the optimum design of a given module. They carry out pre-emptive market research and develop innovative designs through shelf engineering (designs that are prepared proactively in advance of need and placed ‘on the shelf’, thus saving time in the event that the need does arise). They are partners in major cost reduction projects at each model change, and in continuous improvement projects in between.
. Tier 0: the highest possible integration. In addition to tier 0.5 responsibilities, the tier 0 supplier is responsible for a vehicle manufacturer’s main assembly operations divided into separate modules, with a tier 0 supplier responsible for each. Therefore, the supplier performs final VM module assembly operations. Final VM assembly line work retention is a matter of the VM’s strategic choice but it could be performed by the tier 0, as exhibited online by supplier Magna for BMW.
There is a substantial passing of risk from the assembler to the tier 1 supplier at each stage. Increasingly, the supplier takes responsibility for designing and developing new products of increasing complexity in advance of new model programmes. And there is no guarantee that the supplier will get the work, because competitive tenders are issued for each new model. This forces suppliers to keep primary manufacturing and core business at a ‘home’ location, and to construct low-cost, late-configuration ‘postponement’ plants near the OEM’s assembly hall to enable synchro deliveries. The decision by BMW to switch R50 (Mini) assembly from Longbridge to Cowley left a number of suppliers with £2 million synchro assembly units in the wrong place.
The strategic dilemma for tier 1 suppliers who currently supply the assemblers directly is whether to expand into system integrators (tier 0.5), or to become indirect suppliers to such organizations. Siegfried Wolf of Magna International described the tier 0.5 transition as follows:
To become part of this new tier, companies will require a worldwide presence, global sourcing, programme management, technology, JIT and JIS know-how and specialist production knowledge. They will also require a high level of R&D spend.
So, after tier 0.5, where do the competitive challenges lie? Tier 2 suppliers still will be largely low-overhead, product-based companies that have limited service capability. Price pressure will continue to be severe, and return on sales often little above breakeven. Tier 2 suppliers often cannot afford expensive inspection and test resources, so defect levels will continue to be relatively high, often in the range 1,000–2,000 ppm (i.e. 1–2 per cent). This will present major challenges for tier 0.5 suppliers, who must also guarantee delivery reliability to the assembly track, and a module that fits perfectly at all times.
As an example of tier 0.5 evolution, the joint venture between Canada’s Magna International and Japan’s Calsonic Kansei (‘Magna Kansei’) produces the complete fascia (‘cockpit module’) for the Nissan Micra at a new facility close to Nissan’s Washington plant in north-east England. Sales of the joint venture have almost trebled as it assumes responsibility for all of the components and subassemblies that make up the module. Calsonic Kansei designed, developed and tested the Micra fascia from a Nissan-engineered concept design. Co-location of supplier engineers at the Nissan development HQ in Atsugi City meant that Nissan product development teams supervised the design and development process. Magna Kansei assumes responsibility for parts it makes itself, for sourcing externally made parts, and for final module assembly and shipment JIS to the Nissan plant. There are 32 tier 2 suppliers: 18 are imposed, where Nissan sets the price and commercial details. The rest are nominated by Magna Kansei. This effectively limits the amount of integration that can take place at the design stage. Imposed suppliers that have been selected mainly on price act as barriers for improvement of quality capability.
Questions
1. Summaries the advantages and risks to suppliers who want to achieve tier 0.5 status.
2. Consider the differences that can be seen between the logistics conditions of the supplier integration models discussed above. Comment on the geographic proximity, shared investment, asset specificity, IT-system integration and transport costs connected with the above models in a drive towards a ‘tier zero’ status for progressive suppliers and their vehicle manufacturers.
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